22 . 1 . 96 EN Official Journal of the European Communities No C 18/135

Opinion on the communication from the European Commission to the Council and the European Parliament: 'The European Community and : An Enhanced Policy'

( 96/C 18/24)

On 21 December 1994, the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure , decided to draw up an Own-initiative Opinion on the above-mentioned communication . The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject , adopted its Opinion on 3 October 1995 . The Rapporteur was Mr Santillan Cabeza . At its 329th Plenary Session ( meeting of 25 October), the Economic and Social Committee adopted the following Opinion unanimously .

0 . 1 . The Economic and Social Committee has focused 1 . The Commission's proposals its attention on relations between the European Union (EU ) and on several occasions in recent years . This attention has given rise to the preparation 1 . 1 . The Commission's communication proposes the by the Committee of a number of informative documents conclusion of an inter-regional framework agreement and Opinions on inter-regional relations 0 ) . on trade and economic cooperation with Mercosur as a first stage towards the establishment of a free trade area between the two regions . According to the Commission , 0.2 . The Committee has noted the Communication the agreement would , in particular , focus on two areas : from the European Commission to the Council and the European Parliament, dated 19 October 1994 ( 2), — the liberalization of trade between the EU and concerning a framework trade and economic cooper­ Mercosur ; ation agreement between the EU and the Southern Cone Common Market (Mercado Comun del Sur, Mercosur). — support for Mercosur integration .

0.3 . The European Council summit of Essen , on 9-10 December 1994, approved the strategy for an 1.2 . With regard to trade, the aim is the progressive inter-regional association with Mercosur, and called establishment of an inter-regional free trade area in upon the Council and the Commission to establish the the industrial and service sectors , and the gradual conditions for the initiation of negotiations . liberalization ofagricultural commerce . The latter objec­ tive will take account of some sensitive products .

0.4 . On 22 December 1994, the ambassadors of 1.3 . With regard to Mercosur integration , the EU the four Mercosur countries, representatives of the would commit itself to ' substantial cooperation ' with Presidency of the EU and the European Commission the private and public sectors in three main areas : signed a Protocol of Intentions on the proposed accord . Subsequently, at the EU General Affairs Council held in Luxembourg on 10 April 1995 , the EU Member States a ) assistance for the management of Mercosur's own welcomed the Commission's communication , and trade integration process , as well as its foreign trade; instructed the Committee of Permanent Representatives ( COREPER ) to examine the communication with a view to adopting a negotiating brief as soon as possible . b ) support for Mercosur's decision-making authorities , increased technical assistance for the establishment of an internal market, and Mercosur's participation in European R&D , information systems and tele­ 0.5 . It is expected that the negotiations between the communications projects ; EU and the Mercosur countries that began in September 1995 will help create a more stable institutional frame­ work for the strengthening of relations between the two c ) region-wide projects concerning, for example, trans­ regions . port , energy , environment, telecommunications, information systems, town planning, and other industrial sectors .

(!) OJ No C 75 , 26 . 3 . 1990 ; OJ No C 127 , 7 . 5 . 1994 ; CES 962/92, 24 . 1 . 1993 . 1.4 . The Commission also recommends that political (2) COM(94) 428 final . dialogue between the EU and Mercosur should be No C 18/ 136 EN Official Journal of the European Communities 22 . 1 . 96 enhanced , by discussion of more specific issues at more four areas of cooperation : technical assistance, infor­ frequent meetings . The Commission suggests that such mation exchange , training and institutional support . The dialogue, conducted at ministerial level , could include Joint Consultative Committee , which brings together topics such as industrial cooperation , energy , the nuclear representatives of the Common Market Group and the industry , security , environmental issues and drugs . Of European Commission twice yearly, set out three priority particular importance will be cooperation in the field of areas for cooperation in its first meeting on 3 July 1992 : education and in the training of citizens . In the latter agriculture, technical norms and customs . regard , a substantial contribution could be made by the EU programme Latin America-Academic Training ( America Latina-Formaciôn Académica , ALFA). 2.6 . Existing economic links are also strong . The EU is Mercosur's principal trade partner . The Union supplies 1.5 . The Economic and Social Committee would a quarter of the sub-region's imports , and takes over a quarter of its exports . The EU is also Mercosur's main consider it as positive if the final agreement between the source of direct investment, accounting for 36 % of the EU and Mercosur were to contemplate the following stock . About 40% of foreign banks operating in the general and specific comments . sub-region are European .

2 . General comments 2.7 . The Economic and Social Committee therefore endorses the Commission's proposal to pursue an inter-regional framework agreement on trade and econ­ omic cooperation with Mercosur . The Committee does 2.1 . The Economic and Social Committee welcomes so in view of the existing bases for effective partnership the initiative to enhance relations between the EU and between the two regions , and in light of the significant Mercosur . At a time when EU external relations have potential of an integrated market in the Southern Cone . focused on Central and Eastern Europe, as well as the Mediterranean , renewed commitment to Mercosur constitutes a unique opportunity to strengthen economic and political ties with Latin America , thus contributing 2.8 . In that regard , the Committee stresses that the to a more globally-balanced external policy . This stra­ sub-regional market is potentially enormous . With over tegic shift is of fundamental importance if Europe wishes 200 million inhabitants , Mercosur has almost half of to retain economic and political influence in Latin Latin America's population . The sub-region is now America . responsible for over half of Latin America's GDP ; it produces 40 % of the region's manufactured exports ; it attracts about 40% of all foreign direct investment in 2.2 . The Committee believes that an enhanced policy Latin America ; and it is home to 38 of the region's towards Mercosur , via the kind of agreement proposed 50 biggest companies . by the Commission , should be to the mutual benefit of all economic and social sectors in the EU and Mercosur and that it should help contribute to the consolidation of democracy in the Southern Cone . 2.9 . The reduction of internal barriers has led to a continuous expansion of intra-regional trade . This rose 30% in 1993 alone , and now totals over $9 000 million per year . Intra-regional commerce accounted for barely 2.3 . In that context , it is the Committee's conviction 14% of total Mercosur trade in 1990; it now represents that the proposed agreement , in addition to providing 20% . and conduct almost half their economic benefits for both the EU and Mercosur , should trade within Mercosur . For the more globally-orientated contribute to a process of consensus-building between ( 25% ) and ( 10% ), the proportion is the civil societies of both regions . less . Nevertheless , Brazil has become Argentina's largest export market ( ahead of the EU), and Argentina is now Brazil's second largest supplier . 2.4 . The Committee stresses that the bases for such an enhanced policy, in both a social and economic sense , already exist . The southern Cone is the Latin American sub-region in which the European presence has tradition­ 2.10 . In view of existing inter-regional and intra­ regional trends , the Economic and Social Committee ally been strongest . More than any other part of the shares the Commission's view that liberalization of continent , the peoples of Mercosur have a singular trade between the EU and Mercosur will ensure faster awareness of their European heritage . This is the result of solid historical and cultural links , and their growth in European exports to the sub-region than transformation into closer economic ties . would be possible in the absence of an agreement .

2.5 . Special institutional relations also exist . An 2.11 . EU sales to Mercosur have increased signifi­ inter-institutional agreement of 29 May 1992 defined cantly , rising from $ 8 890 million in 1992 to 22 . 1 . 96 EN Official Journal of the European Communities No C 18/137

$ 11 180 million in 1993 and reaching $ 14 362 million 3.3 . The Mercosur countries will require large-scale in 1994 . This trend should be reinforced by a reciprocal investment, particularly in infrastructure . In both freeing of trade between the two regions, helping further respects, the EU can provide support in terms of to stimulate a growing market . know-how . Additionally , and with regard to investment, resources could eventually be provided directly from European Commission budget lines, or through the European Investment Bank . To date, the Bank has 2.12 . A trade agreement should also be advantageous signed framework agreements with three of the four in terms of longer-term EU trade strategy . Recent Mercosur countries , and has undertaken projects in initiatives , such as NAFTA and the Miami Summit of Argentina and Brazil . 9-11 December 1994, suggest a strengthened US presence in Latin America . The possibility of hemisphere-wide free trade ( as envisaged at the Miami Summit) and of 3.4 . The Committee notes that it is standard practice continued Mercosur expansion in South America , make for the EU to incorporate provisions aimed at the an agreement with Mercosur crucial to consolidate the liberalization of maritime regulations whenever a new EU's continued presence in Latin America , and sustain agreement is signed with a third country . Recent its privileged access to one of the world's biggest developments in the Council indicate that the EU is markets . moving in this direction vis-à-vis Mercosur .

2.13 . An EU-Mercosur accord could also boost EU 3.5 . The Economic and Social Committee emphasizes investment . that the enhanced policy towards Mercosur being suggested by the Commission should not be based solely on economic considerations . In particular , the Committee considers it desirable to avoid a situation in 2.14 . The presence of European firms in Mercosur which the only point of inter-regional contact is between has increased significantly in recent years ; in Argentina officials of the European Commission and representa­ alone they represent 50% of the largest multinationals . tives of Mercosur's member governments . This process is a direct consequence of the privatization of public concerns undertaken by Mercosur members , the main beneficiaries of which have been European 3.6 . In this respect, the Committee considers that , in companies . At the same time, the Committee notes the course of negotiations and in the final text of an recent research that suggests that there are still technical EU-Mercosur agreement , special attention should be obstacles to the liberalization of capital flows between paid to the institutional dimension of EU-Mercosur the EU and Mercosur, and is concerned that the relations . This element is not adequately addressed in inter-regional agreement should address that issue . the Communication from the Commission .

3.7 . As part of its institutional structure, Mercosur envisages a consultative body known as the Economic 3 . Specific comments and Social Forum . The Forum, whose establishment depends on ratification by the national parliaments , allows sectors of civil society to express their views to the decision-making bodies of Mercosur . The members 3.1 . While aware of all of the above, however , the of the Forum are representatives of trade union organiz­ Economic and Social Committee is concerned that the ations and business associations from the four Mercosur Communication from the Commission provides no countries . The creation of the Forum , in which the analytical evidence to support the two economic scen­ inclusion of other social sectors would be a positive arios (future inter-regional trade trends with and without development, could be the start of a process leading to an agreement ) that are central to the proposal . The the establishment of a Mercosur Economic and Social Committee feels that the evidence underlying these Council . The Economic and Social Committee of the assumptions should be made public , so that the relative European Communities should be in a position to assist costs and benefits for specific sectors can be discussed the consolidation of such a body in Mercosur . fully in both regions .

3.8 . The Economic and Social Committee considers it desirable that, as an important element of inter-regional 3.2 . In particular, the Committee notes that the relations , regular institutionalized meetings should be Commission's Communication , and the subsequent held between the Committee and the Forum . Like other Council summit of Essen, predate the financial crisis in agreements between the EU and other regions (the and the subsequent economic repercussions Treaty of Oporto , which led to the creation of the in Latin America — especially in Mercosur's largest European Economic Area ; the accord with the countries economies . The Committee is concerned to know what of the Maghreb ; the agreements with countries of additional analysis has been undertaken in the light of Central and Eastern Europe) the accord with Mercosur these events , and if that analysis has altered the scenarios should envisage the establishment of a specific consulta­ presented in the Communication . tive body , made up of the social and economic interlocu­ No C 18/138 EN Official Journal of the European Communities 22 . 1 . 96 tors (the Economic and Social Committee of the EU and — Per capita income in the four countries in 1993 Mercosur's Economic and Social Forum). was as follows : Argentina, $ 4 556; Brazil, $ 2 213 ; Paraguay , $ 1 543 ; and Uruguay, $ 3 080 . As regards their human development indices ( HDI, where 1 is the highest possible ) they are, respectively, 0,853 , 3.9 . This suggestion responds to the need to create 0,756 , 0,679 and 0,859 0 ) . 'networks ' for strengthening links between societies . Such an initiative would serve to enhance the degree of mutual understanding in overall EU-Mercosur relations . — The problem of poverty is evident in Mercosur, It would also be part of an effort to transfer integration although the levels and the characteristics of poverty know-how to Mercosur, on the basis of Europe's long vary considerably between countries and areas (2). experience in this field .

3.14 . In view of these circumstances , the Economic and Social Committee points out the impact on the 3.10 . The strengthening of relations between the living standards of the population, and in particular on societies of the two regions, via new forms of inter­ employment levels , of the following factors : institutional relations, will help sustain the political will necessary to optimize inter-regional links . This would include precisely those fields mentioned in the Com­ a ) on the one hand, the adjustment processes ( based mission's Communication : industrial cooperation, primarily on reducing inflation and the public sector energy , the nuclear industry, security, the environment deficit) that the economies of the Mercosur countries and drugs . are undergoing, which is provoking in some countries a significant increase in unemployment;

3.11 . The Economic and Social Committee addition­ b ) on the other hand , the lifting of tariff barriers and ally feels that the eventual agreement between the EU the increase in intra-regional trade ( undoubtedly and Mercosur should entail an exchange of experience positive in the medium term ) could in the shorter regarding social models in both continents and the term create difficulties for many industrial sectors prospects for improving them , such that inter-regional that are not yet sufficiently competitive in the global trade might bring about a more equitable distribution market . Measures to enhance social and economic of wealth and an improvement of the social situation . cohesion , such as the strengthening of income distri­ bution mechanisms by means of an improvement in the tax systems, could facilitate resolution of social problems in some parts of Mercosur that are already 3.12 . A trade agreement with Mercosur will be of suffering from crisis ; limited use if simultaneous efforts are not made to help improve the social situation in Mercosur countries . In 1994, annual per capita income for Mercosur as a whole c ) of particular note is the situation of migrant workers amounted to $2 709 ( in constant 1988 $ US). This is and their families , since economic growth is causing relatively high compared to other regions in Latin an exodus of many people from poorer to more America : in the Andean Pact countries, per capita developed areas, as well as the problems associated income averages $1 900, and in the Central American with a large informal sector . Common Market, it averages $1 000 . However, such indicators provide only a partial picture of the Mercosur countries, and mask significant differences between them . 3.15 . Apart from its economic repercussions, the process of Mercosur integration will also have profound

3.13 . While integration has given greater dynamism to Mercosur economies , with attendant macroeconomic 0 ) Source : United Nations' Development Programme, Infor­ benefits, the social situation of the member countries me sobre desarrollo bumano 1994; Inter-American Devel­ opment Bank , Economic and Social Progress in Latin should be noted . Argentina and Uruguay are classified by America , 1993 . the United Nations Development Programme (UNDP ) as (2) Measurements of poverty are often controversial . Accord­ countries of 'high-level human development'. Brazil and ing to some estimates , the percentage of the population Paraguay belong to the category ' medium-level human living in absolute poverty has been estimated at 13% in development'. Uruguay ; 16% in Argentina ; 35% in Paraguay ; and 47% in Brazil . Such figures add up to a total of about 80 million of the Mercosur population living in what is termed ' absolute poverty'. Sources : United Nations' Development — Some parts of Mercosur are close to the average of Programme, Informe sobre desarrollo bumano 1994; Inter­ industrialized countries in indicators such as life American Development Bank , Basic Socio-economic Data , expectancy at birth, literacy, and average school 1993 ; IRELA , Poverty in Latin America ; Causes and Costs , years per inhabitant . September 1993 . 22 . 1 . 96 EN Official Journal of the European Communities No C 18/139

implications in terms of industrial relations . The new 3.20 . To offset the dangers of this within Mercosur, technologies and new forms of organizing work that are in December 1993 the Mercosur trade union movement demanded by a larger market will affect the norms produced a proposal for a 'Mercosur Charter of Basic governing the rights and obligations of workers and Rights' that contemplates : employers . It is also probable that there will be a change in the content of collective bargaining, in view of the a ) the scope of integration and its social dimension ; demands for greater adaptation of labour to the changing circumstances of production . Other consequences could include new, more participative systems of labour b ) the right of free circulation of workers ; relations , and greater emphasis on research, training and education of the work force . c ) the individual worker's basic human rights ;

d ) collective rights ;

3.16 . Businesses have a key role in the integration e ) minimum conditions for social security . process . The opening of national economies prompted by tariff reductions is accompanied not only by an Moreover , the trade unions of Mercosur have on several increase in trade flows but also a reorientation of occasions written to the presidents of the four countries business strategy . In order to take advantage of the proposing the creation of a 'social space' 0 ) . The promising, emerging regional market, many local and presidents , in turn , have expressed their interest in foreign businesses are increasing cross-border invest­ ensuring that such basic rights are guaranteed in ment ( in many cases via joint ventures), thereby giving Mercosur . the integration process its own momentum . This is of particular note in the case of industries such as the automotive sector, telecommunications and electronics, 3 . 21 . The Economic and Social Committee underlines which have made ( or have announced) investment in the importance of this proposal by the trade unions , and the area . This establishes a link between regional hopes that it may be put into effect by whatever means integration and foreign investment that could take are considered appropriate . several forms : purchase of stock , expansion of plant, modernization of existing capacity or installation of 3.22 . The Committee welcomes the creation in new units of production . August 1995 of various sub-groups dealing with the environment, agriculture, industry and social aspects of integration, among others .

3.17 . The business community and the trade unions have addressed integration since long before the start of the process . The dynamism of the private sector and 4 . Concluding remarks the business community's willingness to adapt and modernize productive structures have been key elements 4.1 . In general terms , the Economic and Social Com­ in establishing Mercosur . Representatives of the private mittee endorses the strategy to conclude an agreement sector in each of the four countries have recently created with Mercosur, recognizing that the arguments underly­ the Mercosur Industrial Federation . ing the proposals of the Commission are sound in terms of the strategic significance of the sub-region , the possible benefits of intensifying relations, and the potential opportunity costs of non-action . 3.18 . The establishment of Mercosur's Trade Union Commission and the signing of the Treaty of Asuncion Questions arise with regard to concrete aspects of the have given an impetus to trade union activity in the four negotiating process and the practical implementation of countries . While supporting the overall process of the policies proposed . Mercosur development , the trade unions of the four countries also consider it indispensable that the social Specifically , such questions relate to : dimension of integration be developed . Among other reasons , they have expressed the need to avoid the dangers of 'social dumping' as a consequence of the a ) The conclusion of a free trade agreement that diversity of labour conditions in the region . conforms to rules of the World Trade Organization (WTO ) and to the norms of the EU's Common Agricultural Policy ( CAP).

b) The possible implications of enhanced EU-Mercosur 3.19 . In this context, it should be noted that attention dialogue for the overall framework of dialogue must be paid to the possibility of social dumping in between the EU and Latin America . EU-Mercosur relations, since some imports to the EU market will be cheap as a result of low wages and deficiencies of social security systems in exporting ( J ) Letters to Mercosur présidents, 28 . 12 . 1992, 16 . 1 . 1994, countries . 16 . 12 . 1994. No C 18/140 EN Official Journal of the European Communities 22 . 1 . 96

4.2 . With regard to a free trade agreement's compati­ 4.2.6 . Moreover, the agreement should also consider bility with WTO rules, the Communication states that the exchange of experience on labour matters and issues the Commission will ensure that an agreement with of social protection . Mercosur will be compatible with the CAP and with the EU's international obligations relating to the WTO . The 4.3 . With regard to the framework of dialogue Communication further states that the aim of the between the EU and Latin America , the Communication negotiations is the establishment of a free trade area in states that intensified relations with Mercosur should the industrial and service sectors , and a reciprocal and not bring into question the EU's dialogue with the Rio gradual liberalization of agricultural exchanges , taking Group, but should be considered as a deepening and into account the sensitivity of some products . continuation of the latter . 4.3.1 . However , the question does arise as to how, in 4.2.1 . In this connection , it should be noted that the practical terms , an enhanced dialogue with Mercosur final accord of the General Agreement on Tariffs and can be made compatible with the existing dialogue Trade ( GATT), signed on 14 April 1994 in Marrakesh , established via the annual Ministerial Meetings between stipulates in Article XXIV that free trade agreements the foreign ministers of the EU and those of the countries must henceforth include substantially all economic of the Rio Group . sectors, and must lead to complete liberalization within a reasonable period . This suggests that under WTO 4.3.2 . Establishment of a separate, high-level political rules, an EU-Mercosur free trade agreement would only dialogue with Mercosur will necessarily entail discrimi­ be allowed if the accord was intended eventually to lead nation between Latin American countries . This is inescap­ to fully reciprocal free trade . able , in as much as a free trade agreement with Mercosur inevitably gives the sub-region a special status in the EU's relations with Latin America . 4.2.2 . Additionally, the GATT agreement requires both parties to submit regular reports to the WTO . The 4.3.3 . One may therefore question whether the latter would effectively approve, or not , the trade­ Mercosur countries will remain party to the EU-Rio liberalization schedule . It would also check to ensure Group discussions, or whether the separate dialogue that there was a genuine intention of full , free trade . would substitute their involvement in the Rio Group for the purposes of dialogue with the EU . In the latter case , 4.2.3 . The elimination of all tariff barriers in the the possibility cannot be discounted that the departure of industrial and agricultural sectors could prove problem­ the Mercosur countries from the EU-Rio Group dialogue atic . Brazil , for example , is an important exporter of might lead to the weakening of that dialogue, or even to basic industrial goods such as steel , textiles and car its collapse . In that respect, and while welcomingpolitical spares , as well as computing equipment . dialogue between the EU and the Mercosur , the Com­ mittee is particularly concerned that the institutional framework of enhanced inter-regional relations should 4.2.4. Difficulties might also arise in the agricultural not be detrimental to the functioning of the Rio Group , sector . All Mercosur countries , in particular Argentina which has played an important role in coordinating Latin and Uruguay, are exporters of high quality agricultural American positions at a region-wide level . goods , such as wheat, beef and wine which would compete with the produce of EU Member States . The 4.4 . Finally , the Committee reiterates its interest in complete elimination of EU trade barriers to agricultural the institutional framework of EU-Mercosur relations, imports from Mercosur would affect the CAP , and might and its conviction that links between the two regions provoke complaints from third countries exporting the will be further strengthened if social and economic same products to the European Market . actors were to establish periodic , institutionalized con­ tacts . The Committee believes that an effective way of 4.2.5 . In general , the Committee wishes to express its pursuing this objective would be via the establishment concern that an EU-Mercosur free trade agreement of regular dialogue between the Economic and Social should be compatible with the Union's international Committee of the European Communities , on the one obligations as regards the WTO , while conforming to hand, and the Economic and Social Forum of the the norms of the CAP . Mercosur, on the other .

Done at Brussels , 25 October 1995 .

The President of the Economic and Social Committee Carlos FERRER